Gold Surges as Investors Seek Clues

Investors will closely watch the US economic data and relevant Federal Reserve speakers to gain further insight into the Fed's intentions and determine gold's direction.​​

The Price of Gold Rises

Gold prices have reached new record highs this year following the US Federal Reserve's double interest rate cut last week, with a gain of over 27% this year. As the Fed moves towards easier monetary policy and interest rates are expected to fall, gold prices are anticipated to continue rising. However, the pace at which gold can keep climbing may largely depend on expectations around how steeply interest rates will decrease in the coming months. Speeches this week from Fed officials such as Chairman Jerome Powell on Thursday could provide markets with additional insight into the direction of interest rates.

A key consideration in discussions is whether the US economy can achieve a "soft landing" after fluctuating growth reports. The first quarter saw GDP expand at an annual rate of 1.4%, which more than doubled to 3.0% in preliminary figures for the second quarter. Analysts expect this figure to be confirmed with the final growth reading on Thursday. Forecasts also anticipate growth of 2.2% for the third quarter, which could maintain investor confidence while employment eases and inflation stabilises.

Focus on Key Events

The speech given by Fed Chairman Powell at the US Treasury Market Conference will likely be closely examined, as he often uses his first public appearance to comment on market reactions to the latest interest rate decision. Traders may feel apprehensive about any "clarification" regarding what was seen as the aggressively dovish move by the Fed, predicting two more rate cuts (one at each meeting) for the rest of the year. Governor Michelle Bowman's two appearances this week will also be of interest after she became the first dissenter in a decision in 19 years, concerned about rates being cut too quickly.

The week will conclude with the release of the Fed's preferred measure of inflation, the PCE Price Index. Governor Christopher Waller argued last week that inflation is expected to continue decreasing and might fall below the target, which was the main impetus for reducing rates. Investors banking on rising gold prices as the Fed pushes interest rates lower will want to see if the trend of lower inflation continues. Monthly core PCE inflation is expected to remain at 0.2% and stay unchanged at an annual rate of 2.6%, according to analysts' consensus.​

Cup and Handle Projection

Based on the measured move of a multi-year cup and handle pattern, gold has a chance of reaching $2790 per ounce, measured the movement from gold's high of $1920 in 2011 to its low of $1050 in 2016. Comments from officials supporting loose monetary policy, along with declining inflation and slower economic expansion, could prompt gold to rise to around $2790. However, positive economic data this week may encourage traders to sell gold for profit towards prices of $2500 and, in the longer run, $2270.​

Source: SpreadEx / Spot, Gold

Key Takeaways

Investors will closely monitor economic data and Fed speakers for guidance on interest rates and the economy and to determine whether gold prices can continue rising as interest rates fall. Key events this week are speeches by Fed Chair Powell and Governor Bowman on rates and inflation data on Friday. Positive data could see gold fall towards the major support of $2500, but further dovishness may push prices up to $2790 based on the long-term cap and handle pattern gold presents in.